Case 3:16-cv-06658-JSC Document 19 Filed 01/11/17 Page 1 of 10 1 2 3 4 5 6 7 8 9 10 STEVEN A. ELLIS (SBN 171742) sellis@goodwinlaw.com SHAUNA E. WOODS (SBN 300339) swoods@goodwinlaw.com GOODWIN PROCTER LLP 601 S. Figueroa Street, 41st Floor Los Angeles, CA 90017 Tel.: 213.426.2500 Fax.: 213.623.1673 GRANT P. FONDO (SBN 181530) gfondo@goodwinlaw.com GOODWIN PROCTER LLP 135 Commonwealth Drive Menlo Park, CA 94025-1105 Tel.: 650.752.3100 Fax.: 650.853.1038 Attorneys for Proposed Intervenor COINBASE, INC. 11 UNITED STATES DISTRICT COURT 12 NORTHERN DISTRICT OF CALIFORNIA 13 SAN FRANCISCO DIVISION Goodwin Procter LLP 601 S Figueroa Street, 41st Floor Los Angeles, CA 90017 14 15 IN THE MATTER OF THE TAX LIABILITIES OF: 16 17 18 JOHN DOES, United States persons who, at any time during the period January 1, 2013, through December 31, 2015, conducted transactions in a convertible virtual currency as defined in IRS Notice 2014-21. 19 20 Case No. 3:16-cv-06658-JSC NOTICE OF MOTION AND MOTION OF PROPOSED INTERVENOR COINBASE INC. TO INTERVENE; MEMORANDUM OF POINTS OF AUTHORITIES Date: Time: Courtroom: Judge: February 16, 2017 9:00 a.m. F (15th Floor) Hon. Jacqueline Scott Corley 21 22 23 24 25 26 27 28 ACTIVE/89292521.1 NOTICE OF MOTION AND MOTION OF PROPOSED INTERVENOR COINBASE INC. TO INTERVENE; MEMORANDUM OF POINTS OF AUTHORITIES Case No. 3:16-CV-06658-JSC Case 3:16-cv-06658-JSC Document 19 Filed 01/11/17 Page 2 of 10 NOTICE OF MOTION AND MOTION TO INTERVENE 1 2 TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: 3 PLEASE TAKE NOTICE that on February 16, 2017 at 9:00 a.m., or as soon thereafter as 4 the matter may be heard before the Honorable Jacqueline Scott Corley, Magistrate Judge of the 5 United States District Court for the District of California – San Francisco Division, located at 450 6 Golden Gate Avenue, San Francisco, California, Coinbase, Inc. (“Coinbase”) will and hereby does 7 move to intervene as of right (or, in the alternative, permissively) in the above-captioned 8 proceeding. The motion to intervene is made on the grounds that Coinbase has an interest in the subject Goodwin Procter LLP 601 S Figueroa Street, 41st Floor Los Angeles, CA 90017 9 10 matter of this proceeding, and that disposition of the action may, as a practical matter, impair or 11 impede Coinbase’s ability to protect that interest. Coinbase’s interest is not adequately 12 represented by the existing parties. Specifically, the IRS has issued an extraordinarily broad “John 13 Doe” summons to Coinbase that seeks (among other categories) information regarding every 14 single transaction conducted by every single U.S.-based Coinbase account holder (no matter how 15 large or small) for a three-year period. Proposed Intervenor Jeffrey K. Berns (a Coinbase account 16 holder) has moved to intervene and to quash the summons on certain grounds, but Coinbase has 17 strong arguments regarding why the summons should not be enforced that are separate from and in 18 addition to the grounds stated by Mr. Berns. In the event that the motion of Mr. Berns to intervene 19 in this proceeding is granted, Coinbase should also be allowed to intervene, and to present its own 20 legal and factual arguments in opposition to the summons, before the Court makes its decision 21 regarding enforcement and/or quashing the summons. 22 23 /// 24 25 /// 26 27 /// 28 1 NOTICE OF MOTION AND MOTION OF PROPOSED INTERVENOR COINBASE INC. TO INTERVENE; MEMORANDUM OF POINTS OF AUTHORITIES Case No. 3:16-CV-06658-JSC ACTIVE/89292521.1 Case 3:16-cv-06658-JSC Document 19 Filed 01/11/17 Page 3 of 10 1 Coinbase’s motion to intervene is made pursuant to Federal Rule of Civil Procedure 24 and 2 Civil Local Rules 7-1 through 7-6. The motion is based on this Notice of Motion and Motion, the 3 Memorandum of Points and Authorities, the pleadings and records in this action, and such other 4 materials and arguments as may be presented to the Court at or prior to the hearing. 5 Respectfully submitted, 6 7 Dated: January 11, 2017 8 9 10 11 By: /s/ Steven A. Ellis STEVEN A. ELLIS sellis@goodwinlaw.com GRANT P. FONDO gfondo@goodwinlaw.com SHAUNA E. WOODS swoods@goodwinlaw.com GOODWIN PROCTER LLP Attorneys for Proposed Intervenor COINBASE, INC. 12 13 Goodwin Procter LLP 601 S Figueroa Street, 41st Floor Los Angeles, CA 90017 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 NOTICE OF MOTION AND MOTION OF PROPOSED INTERVENOR COINBASE INC. TO INTERVENE; MEMORANDUM OF POINTS OF AUTHORITIES Case No. 3:16-CV-06658-JSC ACTIVE/89292521.1 Case 3:16-cv-06658-JSC Document 19 Filed 01/11/17 Page 4 of 10 MEMORANDUM OF POINTS AND AUTHORITIES 1 2 3 Proposed Intervenor Coinbase, Inc. (“Coinbase”) respectfully submits this memorandum of points and authorities in support of its motion to intervene. FACTUAL AND PROCEDURAL HISTORY 4 5 6 offers a range of services that allow account holders (individuals and businesses) to conduct 7 transactions using digital currencies. Coinbase is registered as a money services business with the 8 United States Department of the Treasury, Financial Crimes Enforcement Network (known as 9 “FinCEN”) and is licensed in 34 states (plus the District of Columbia and Puerto Rico). Coinbase 10 is strongly committed both to protecting the important privacy interests of its account holders and 11 to cooperating with government entities investigating illegal activities or other abuses of Coinbase 12 services. Goodwin Procter LLP 13 601 S Figueroa Street, 41st Floor Los Angeles, CA 90017 Coinbase is an industry-leading financial services company based in San Francisco that On November 17, 2016, the IRS initiated this proceeding by filing an ex parte petition 14 pursuant to 26 U.S.C. § 7609(h)(2) for an order permitting the IRS to serve a “John Doe” 15 summons on Coinbase. The summons is extraordinarily broad. For each of the hundreds of 16 thousands of Coinbase account holders based in the United States, the IRS seeks all of the 17 following information for a period of three years: 18 19 20 21 22 23 24 25 26 27 28 1. Account/wallet/vault registration records for each account/wallet/vault owned or controlled by the user during the period stated above including, but not limited to, complete user profile, history of changes to user profile from account inception, complete user preferences, complete user security settings and history (including confirmed devices and account activity), complete user payment methods, and any other information related to the funding sources for the account/wallet/vault, regardless of date. 2. Any other records of Know-Your-Customer due diligence performed with respect to the user not included in paragraph 1, above. 3. For any account/wallet/vault with respect to which the registered user gave any thirdparty access, control, or transaction approval authority, all powers of attorney, letters of wishes, corporate minutes, or other agreements or instructions granting the third party such access, control, or approval authority. 4. All records of account/wallet/vault activity including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, the names or other identifiers of counterparties to the transaction; requests or instructions to send or receive bitcoin; and, where counterparties transact 1 NOTICE OF MOTION AND MOTION OF PROPOSED INTERVENOR COINBASE INC. TO INTERVENE; MEMORANDUM OF POINTS OF AUTHORITIES Case No. 3:16-CV-06658-JSC ACTIVE/89292521.1 Case 3:16-cv-06658-JSC Document 19 Filed 01/11/17 Page 5 of 10 through their own Coinbase accounts/wallets/vaults, all available information identifying the users of such accounts and their contact information. 1 2 5. For each merchant user for which you act as Payment Service Provider, records of all payments processed, including records identifying the user of the wallet charged, if a Coinbase user, or the address of the wallet charged, if not, the date and amount of the transaction, and any other information that will enable the merchant to identify the transaction. 3 4 5 7 6. All correspondence between Coinbase and the user or any third party with access to the account/wallet/vault pertaining to the account/wallet/vault, including but not limited to letters, memoranda, telegrams, telexes, facsimiles, e-mail, letters of instruction, and memoranda of telephone or oral instructions received. 8 7. All periodic statements of account or invoices (or the equivalent). 9 8. All records of payments to or from the user by checks, wire or other electronic transfer, ACH transaction, PayPal transfer, credit or debit card transaction, money order, transfer to or from other digital currency wallet address, or any other method, including records reflecting the form, manner, nature, and purpose of such payment including, but not limited to, ABA routing number and other routing information, payment instructions, and any and all invoices, billing statements, receipts, or other documents memorializing and describing such transaction. 6 10 11 12 9. All exception reports produced by your AML system, and all records of investigation of such exceptions. 13 Goodwin Procter LLP 601 S Figueroa Street, 41st Floor Los Angeles, CA 90017 14 15 Dkt. 2. Thus, the IRS is seeking (among other categories) information regarding every single 16 transaction conducted by every single U.S.-based Coinbase account holder (no matter how large 17 or small) for a three-year period. In its papers, however, the IRS offered only the slimmest of 18 support for their expansive request: the IRS submitted a single declaration from an agent who 19 described the results of his Google search, offered generalities about the “information and 20 experience of the IRS,” and described three anecdotal situations of alleged failures to report 21 income relating to digital currency, two of which involved relatively mundane examples of 22 taxpayers improperly claiming personal expenditures as business expenses. Id. The IRS did not 23 suggest, and has never suggested, that Coinbase itself has engaged in any wrongdoing of any kind. 24 Id. 25 Under the provisions of 26 U.S.C. § 7609(h)(2), the Court was required to rule on the 26 IRS’s petition based solely upon the papers submitted in support of the request, without input from 27 Coinbase or others. On November 30, 2016, this Court granted the petition. Dkt. 7. 28 2 NOTICE OF MOTION AND MOTION OF PROPOSED INTERVENOR COINBASE INC. TO INTERVENE; MEMORANDUM OF POINTS OF AUTHORITIES Case No. 3:16-CV-06658-JSC ACTIVE/89292521.1 Case 3:16-cv-06658-JSC Document 19 Filed 01/11/17 Page 6 of 10 On December 13, 2016, proposed intervenor Mr. Jeffrey K. Berns filed a motion to 1 2 intervene and to quash the summons, or in the alternative for a protective order, or in the 3 alternative for an order scheduling an evidentiary hearing and permitting limited discovery (the 4 “Berns Motion”). Dkt. 9. As a procedural matter, Mr. Berns argued that he should be permitted 5 to intervene in this proceeding. Id. As a substantive matter, he argued that the summons should 6 be quashed (or, in the alternative, that he should be entitled to discovery and/or an evidentiary 7 hearing to resolve potentially disputed facts relating to his motion to quash). Id. On December 27, 2016, the IRS filed an opposition to the Berns Motion. Dkt. 15. In the 8 9 opposition, the IRS argued that the Berns Motion should be denied on both procedural and 10 substantive grounds. Id. On the same day, and in an effort to moot the Berns Motion, the IRS 11 sent a letter to Coinbase’s counsel stating that it was withdrawing the request for the production of 12 records relating to transactions by Mr. Berns. Dkt. 16. Mr. Berns filed his reply brief on January 3, 2017. Dkt. 17. The hearing on the Berns Goodwin Procter LLP 601 S Figueroa Street, 41st Floor Los Angeles, CA 90017 13 14 Motion is currently scheduled for January 19, 2017. Concurrently with this motion to intervene, 15 Coinbase is filing a motion to change the time for the hearing on the Berns Motion until late 16 March (or such other time as the Court may set). ARGUMENT 17 18 19 I. COINBASE MAY INTERVENE AS A MATTER OF RIGHT UNDER RULE 24(A). A proposed intervenor may intervene as a matter of right under Federal Rule of Civil 20 Procedure Rule 24(a) when: (1) the application for intervention is “timely”; (2) the applicant has a 21 “significantly protectable interest” that “may, as a practical matter,” be “impair[ed] or impede[d] 22 by “the disposition of the action”; and (3) the applicant’s interest is not “adequately represented by 23 the existing parties in the lawsuit.” Southwest Center for Biological Diversity v. Berg, 268 F.3d 24 810, 817-18 (9th Cir. 2001) (citing Northwest Forest Resource Council v. Glickman, 82 F.3d 825, 25 836 (9th Cir. 1996)). Courts must “construe Rule 24(a) liberally in favor of potential intervenors.” 26 Id. at 818 (citing Forest Conservation Council v. United States Forest Serv., 66 F.3d 1489, 1493 27 (9th Cir. 1995).) Coinbase easily meets each of these requirements and so may intervene as of 28 right under Rule 24(a). 3 NOTICE OF MOTION AND MOTION OF PROPOSED INTERVENOR COINBASE INC. TO INTERVENE; MEMORANDUM OF POINTS OF AUTHORITIES Case No. 3:16-CV-06658-JSC ACTIVE/89292521.1 Case 3:16-cv-06658-JSC Document 19 Filed 01/11/17 Page 7 of 10 1 A. 2 Three factors must be weighed to determine whether a motion to intervene is timely: 3 (1) the stage of the proceeding at which an applicant seeks to intervene; (2) the prejudice to other 4 parties; and (3) the reason for the length of the delay. See United States v. Oregon, 745 F.2d 550, 5 552 (9th Cir. 1984). The standard for determining what constitute timeliness under Rule 24 is 6 determined by considering all of the relevant facts and circumstances. See id. 7 Here, there is no question that Coinbase’s application is timely. This proceeding is 8 incipient, and Coinbase has not delayed in filing this motion to intervene. No party will be 9 unfairly prejudiced by Coinbase’s participation: the IRS has not yet moved to enforce the 10 summons, and the account records of Mr. Berns (which the IRS no longer seeks) will not be 11 produced pending the resolution of this proceeding. Thus, Coinbase’s application for intervention 12 is timely. 13 B. Goodwin Procter LLP COINBASE POSSESSES A SIGNIFICANT INTEREST THAT MAY BE IMPAIRED BY RESOLUTION OF THIS ACTION. 14 601 S Figueroa Street, 41st Floor Los Angeles, CA 90017 COINBASE’S APPLICATION FOR INTERVENTION IS TIMELY. 15 Rule 24(a)’s interest requirement is “a practical, threshold inquiry” and “[n]o specific legal 16 or equitable interest need to be established.” Greene v. United States, 996 F.2d 973, 976 (9th Cir. 17 1993). “[A] party has a sufficient interest for intervention purposes if it will suffer a practical 18 impairment of its interests as a result of the pending litigation.” California ex rel. Lockyer v. 19 United States, 450 F.3d 436, 441 (9th Cir. 2006); Berg, 268 F.3d at 822 (“We follow the guidance 20 of Rule 24 advisory committee notes that state that ‘[i]f an absentee would be substantially 21 affected in a practical sense by the determination made in an action, he should, as a general rule, 22 be entitled to intervene.’”). 23 In this matter, if Mr. Berns is permitted to intervene, the resolution of his challenges to the 24 IRS summons may, as a practical matter, impair Coinbase’s ability to protect its own interests. 25 Although there is some overlap in the arguments that Mr. Berns makes in support of his motion to 26 quash the IRS summons and those that Coinbase would make in this proceeding, Coinbase has 27 strong arguments regarding why the summons should not be enforced that are separate from and in 28 addition to the grounds stated by Mr. Berns. Coinbase would like to present the Court with 4 NOTICE OF MOTION AND MOTION OF PROPOSED INTERVENOR COINBASE INC. TO INTERVENE; MEMORANDUM OF POINTS OF AUTHORITIES Case No. 3:16-CV-06658-JSC ACTIVE/89292521.1 Case 3:16-cv-06658-JSC Document 19 Filed 01/11/17 Page 8 of 10 1 additional arguments (including regarding the scope of the summons and the burden it would 2 place on Coinbase), as well as additional authorities, to show that the IRS summons should not be 3 enforced. In the event that the motion of Mr. Berns to intervene in this proceeding is granted, 4 Coinbase should also be allowed to intervene, and to present its own legal and factual arguments 5 in opposition to the summons, before the Court makes its decision regarding enforcement and/or 6 quashing the summons. If Coinbase is barred from intervening, and in connection with the Berns 7 Motion the Court makes a ruling regarding the scope of the summons, Coinbase’s ability to 8 protect its own interests may, as a practical matter, be impaired. 9 10 11 Thus, Coinbase has a sufficient interest in this proceeding to intervene as of right under Rule 24. C. BERNS. Goodwin Procter LLP 12 601 S Figueroa Street, 41st Floor Los Angeles, CA 90017 COINBASE IS NOT ADEQUATELY REPRESENTED BY EITHER PETITIONER OR 13 The final requirement under Rule 24(a) is the “minimal” burden of establishing that 14 Coinbase’s interest “may be” inadequately represented by the existing parties. Trbovich v. United 15 Mine Workers of Am., 404 U.S. 528, 538 n.10 (1972). In analyzing the adequacy of existing 16 parties in representing the proposed intervenor’s interests, the Ninth Circuit considers “several 17 factors, including [1] whether [existing parties] will undoubtedly make all of the intervenor’s 18 arguments, [2] whether [existing parties are] capable of and willing to make such arguments, and 19 [3] whether the intervenor offers a necessary element to the proceedings that would be neglected.” 20 Sagebrush Rebellion, Inc. v. Watt, 713 F.2d 525, 528 (9th Cir. 1983). 21 Here, Coinbase will not be adequately represented by either the IRS or Mr. Berns. The 22 IRS has issued a summons to Coinbase and so is plainly not in a position to represent Coinbase’s 23 interests. Moreover, although Mr. Berns, as an account holder, may share with Coinbase an 24 interest in challenging the IRS summons, Coinbase has independent interests (including, for 25 example, with regard to the scope of the summons and the burden that it would place on Coinbase) 26 that Mr. Berns is not able to represent. 27 28 Accordingly, neither the IRS nor Mr. Berns will adequately represent the interests of Coinbase in this proceeding. 5 NOTICE OF MOTION AND MOTION OF PROPOSED INTERVENOR COINBASE INC. TO INTERVENE; MEMORANDUM OF POINTS OF AUTHORITIES Case No. 3:16-CV-06658-JSC ACTIVE/89292521.1 Case 3:16-cv-06658-JSC Document 19 Filed 01/11/17 Page 9 of 10 Goodwin Procter LLP 601 S Figueroa Street, 41st Floor Los Angeles, CA 90017 1 II. COINBASE IS ALSO ENTITLED TO INTERVENE BECAUSE IT SATISFIES THE 2 REQUIREMENTS FOR PERMISSIVE INTERVENTION UNDER RULE 24(B). 3 Independently, and in the alternative, Coinbase should also be allowed to intervene under 4 the permissive intervention provisions of Federal Rule of Civil Procedure Rule 24(b). Rule 24(b) 5 provides that upon timely application “the court may permit anyone to intervene who ... has a 6 claim or defense that shares with the main action a common question of law or fact.” FED. R. CIV. 7 P. 24(b)(1)(B). “In exercising its discretion the court must consider whether the intervention will 8 unduly delay or prejudice the adjudication of the original parties’ rights.” FED. R. CIV. P. 24(b)(3). 9 As discussed above, Coinbase’s application for intervention is timely and intervention will 10 not unduly delay or prejudice the adjudication of the rights of any party. The proceeding involves 11 a summons that the IRS has issued to Coinbase, and Coinbase has defenses to enforcement that 12 share common questions of law and fact with the challenges asserted by Mr. Berns. Thus, as an 13 alternative to intervention under Rule 24(a), Coinbase requests that the Court exercise its 14 discretion and permit the Coinbase to intervene is this case under Rule 24(b). CONCLUSION 15 16 17 For the foregoing reasons, Coinbase respectfully requests that the Court grant its motion to intervene in this action. 18 Respectfully submitted, 19 20 Dated: January 11, 2017 21 22 23 24 By: /s/ Steven A. Ellis STEVEN A. ELLIS sellis@goodwinlaw.com GRANT P. FONDO gfondo@goodwinlaw.com SHAUNA E. WOODS swoods@goodwinlaw.com GOODWIN PROCTER LLP Attorneys for Proposed Intervenor COINBASE, INC. 25 26 27 28 6 NOTICE OF MOTION AND MOTION OF PROPOSED INTERVENOR COINBASE INC. TO INTERVENE; MEMORANDUM OF POINTS OF AUTHORITIES Case No. 3:16-CV-06658-JSC ACTIVE/89292521.1 Case 3:16-cv-06658-JSC Document 19 Filed 01/11/17 Page 10 of 10 CERTIFICATE OF SERVICE 1 In the Matter of the Tax Liabilities of John Does etc. N.D. Cal Case No. 3:16-cv-06658-JSC 2 3 4 I, Steven A. Ellis, hereby certify that a copy of the foregoing document, filed through the 5 CM/ECF system, will be sent electronically to the registered participants as identified on the 6 Notice of Electronic Filing (NEF) and paper copies shall be served by first class mail postage 7 prepaid on all counsel who are not served through the CM/ECF system on January 11, 2017. 8 /s/ 9 Steven A. Ellis STEVEN A. ELLIS 10 11 12 13 Goodwin Procter LLP 601 S Figueroa Street, 41st Floor Los Angeles, CA 90017 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 NOTICE OF MOTION AND MOTION OF PROPOSED INTERVENOR COINBASE INC. TO INTERVENE; MEMORANDUM OF POINTS OF AUTHORITIES Case No. 3:16-CV-06658-JSC ACTIVE/89292521.1